Jio Financial (NSE: JIOFIN) shares are down 4.99% today. JIOFIN shares being down only 4.99% is an improvement on the 5% on each of the last two days but that’s just a mathematical trick of rupees and paise. Jio Financial has actually dropped the maximum amount the circuit breakers will allow each of the three days since its IPO. This showing us one of the problems with having such circuit breakers. The entire point of our having a stock market is so that we gain price discovery. What is the price at which people are willing to buy and sell? That’s the whole game, the valuation process.
As we’ve said about Jio Financial: “JIOFIN shares can’t go any lower than 5% down because of the trading limits on such new share issues. So quite where this is going to go in the days ahead is unknown as it’s simply not possible for the price discovery process to work in real time. The trading limits mean that it will take days to find the true trading range. That might all sound a bit odd - it is odd as the aim of a stock market is to find the value of a stock - but that’s the way it’s done in India.”
And as we said the next day about JIOFIN: “JIOFIN was actually down at the open and hitting the circuit breakers from minute one of trading. A reasonable conclusion from this is that the IPO was at too high a price. Given a 10% drop in the two days that seems like a reasonably certain statement in fact. But what’s worse is that the price limits on trading make the issue worse. The uncertainty about the valuation means that Jio Financial should be allowed to float free - that’s the only way we’ll get to an agreed valuation after all.”
Jio Financial share price from Google Finance
Or from the NSE:
As we can see Jio Fin opened limit down and the price simply could not move any more this day. Given those circuit breakers the market simply is not able to do its job of price discovery.
A reasonable speculation - a reasonable one only, not something that we’re recommending - is that one day soon enough the selling wave will cease. And that’s the point at which it might be worth taking a longer view of the price. Buying when it might just open another 5% down tomorrow might not be the wisest idea. But when the selling wave has finished how many others will be interested and so push the price back up again?